Working Paper
Seniority-based layoffs as an incentive device
Abstract: This paper provides a simple economic rationale for two elements that often appear - implicitly or explicitly - in firms' personnel policies. When firms reduce their labor input they often (i) lay off a few individuals rather than adjust work hours, and (ii) make retention decisions on the basis of seniority. We show that in a stochastic environment, a seniority-based layoff policy can have the effect of making the job valuable to a worker over most of her career. This provides work-life incentives using a mechanism similar to Lazear's well known model of upward-sloping wage profiles. Firms reduce their workforce by adjusting employment rather than work hours because layoffs are an integral part the incentive scheme.
https://doi.org/10.20955/wp.1998.006
Access Documents
File(s):
File format is application/pdf
https://s3.amazonaws.com/real.stlouisfed.org/wp/1998/1998-006.pdf
Description: Full text
Authors
Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 1998
Number: 1998-006